Should I pay off debt or invest?
Should I pay off debt or invest?
Always capture an employer match first. After that, attack any debt with an interest rate above the return you reasonably expect to earn — then invest the rest.
Key takeaways
- Get the employer 401(k) match first
- Wipe out double-digit interest debt before investing
- A small emergency fund prevents new debt
- After that, invest the difference
TL;DR
This isn't one-or-the-other. The order is: 1) match, 2) high-interest debt, 3) emergency fund, 4) invest the rest.
How to decide
- Take the employer match. Skipping a match is the most expensive mistake on this list.
- Build a small emergency fund (about one month of expenses) so a flat tire doesn't become new credit-card debt.
- Crush high-interest debt — anything above roughly 7–8% APR is a guaranteed loss that beats almost any expected investment return.
- Invest the difference while continuing to chip at lower-rate debt on its scheduled payoff.
Watch-outs
Don't empty your emergency fund to pay down debt — you'll re-borrow at the next surprise expense. Don't invest in a brokerage account while ignoring a 24% credit card.
Related
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Promised "guaranteed" returns, urgency, unregistered sellers, and pressure to keep it secret are the four classic red flags of investment fraud.
Wealthypedia is educational. This isn't financial, tax, legal, or investment advice. Last reviewed —.